Fiera Capital Corporation

Good morning, my name is Sylvie, and I will be your conference operator today. At this time, I would like to welcome everyone to FEAR Capital's earnings call to discuss financial results for the second quarter of 2023. All lines have been placed on mute to prevent any background noise. After the speaker's prepared remarks, there will be a question and answer period. As a reminder, this conference call is being recorded. And if you would like to ask a question during this time, simply press star 1, then star on your telephone keypad. And if you would like to withdraw your questions, please press star then two. Thank you. And I would like to turn the conference over to Marie-France Gay, Senior Vice President, Treasury and Investor Relations. Ms. Gay, you may begin your conference.

Thank you, Sylvie. Good morning, everyone. Bonjour à tous. Bienvenue à l'appel de conférence de Fiera Capital pour discuter des résultats financiers du deuxième trimestre de l'exercice 2023. Welcome to the FIERA Capital Conference call to discuss our financial results for the second quarter of 2023. Note that today's call will be held in English. Before we begin, I invite you to download a copy of today's presentation, which can be found in the investor relations section of our website at ir.fieracapital.com. Also note that comments made on today's call, including replies to certain questions, may deal with forward-looking statements, which are subject to risks and uncertainties that may cause actual results to differ from expectations. I would ask you to take a moment to read the forward-looking statements on page two of the presentation. On today's call, we will discuss our Q2 2023 results, starting with an update on our AUM flows, followed by highlights of our public and private markets platforms, as well as our private wealth business. We will then review our financial performance. Our speakers today are Monsieur Jean-Guy Desjardins, Chairman of the Board and Global Chief Financial Executive Officer, and Mr. Lucas Pontillo, Executive Director and Global Chief Financial Officer. Also available to answer questions following the prepared remarks will be Jean-Michel, President and Chief Investment Officer, Public Markets, and John Valentini, President and Chief Executive Officer, Private Markets. With that, I will now turn the call over to Jean.

Thank you, Marie-France. Good morning, everyone, and thank you for joining us today. The resilience in the global economy, along with ongoing labor market imbalances and sustained consumer spending, are supporting both activity and prices. resulting in central banks continuing to hike rates in the second quarter to apply more pressure to cool down the economy. As such, expectations for rate cuts have reduced in response and fixed income markets generated negative results in the second quarter as bond yields increased following a change in market expectations. Global equity markets extended their 2023 gains in the second quarter, with the strong performance concentrated in indices more heavily weighted towards the mega-cap technology stocks, whereas the S&P TSX, while still generating positive results, lagged due to their higher exposure to financials and resources. For private markets, it has been a complex period for the space. where the overarching market forces have slowed the pace of investment across the industry, both with the speed of deployment and availability of capital for fundraising. Despite the industry headwinds faced, our private markets platform maintains a steady pace of deployment and flows as a testament to our investment team's focus on long-term quality assets within their various investment portfolios. Against this backdrop, we reported assets under management of $164.2 billion, which was essentially flat to March 31st. The neutral movement in AUM quarter over quarter came from positive net organic growth from private markets and market appreciation in public markets, offset by by outflows of certain AUM sub-advised by Pinestone, and rebalancing away from fixed income. AUM in private markets grew to $18.9 billion in the second quarter. We saw positive net organic growth into our private market strategies, which continued to drive top-line growth due to the higher fee rate of the strategies compared to traditional public market strategies. AUM in public markets was $145.3 billion at the end of the second quarter of 2023, with new mandates outpacing lost mandates in the quarter. You will see that we have added further transparency to our reporting and separately disclosed AUM flows subadvice by PINESTONE this quarter. Market gains in the quarter and year to date have neutralized and even outpaced the impact of the leakage experienced as expected and discussed last quarter. The net withdrawals of 1.9 billion in the quarter were mostly offset by 1.5 billion of market appreciation. Year-to-date, net withdrawals of 4.4 billion were more than offset by market appreciation of 5.3 billion. We saw new allocations into the strategy from both institutional and private wealth clients as part of multi-asset mandates. This reinforces how the Global Equity Strategy, sub-advised by Pinestone, forms one part of the vast suite of offerings we provide to our clients to achieve their overall investment objectives. This has translated to a stable amount of base management fees earned on this AUM, which has not decreased compared to the previous quarter or even year-on-year. We continue to expect revenues to be largely unaffected by the pace of odd flows related to PINESTONE as the asset base continues to benefit from market appreciation, new flows, and new clients. Year-over-year, both end of second quarter and average AUM in public markets were essentially flat compared to the same period last year. Public markets AUM in the current quarter reflected a partial regain of the loss in asset values in 2022. However, AUM in the second quarter of 2022 reflected a still elevated market at the onset, before the full impact of the market downturn was experienced, which resulted in further equity rebalancing later on in the quarter. AUM from our private wealth platform was essentially flat at $14 billion this quarter, with positive net organic growth generated from our private market strategies offset by withdrawals from fixed income mandates in the U.S. Despite a challenging environment for flows during the quarter, given the persistent macroeconomic uncertainty and clients continued overweighting to cash, we have seen the pace of redemptions decrease from the peak experience in the fourth quarter of 2022. So I will now turn to our commercial and investment performance across our platforms in the quarter. Starting with our public market platform, we won $700 million of gross new mandates across all channels in the second quarter of 2023, driven largely by clients allocating to our LDI and U.S. tax-efficient strategies, which offer specific fixed-income solutions. The $1.6 billion of negative net contribution, excluding net flows on AUM subadvice by Pinson, were largely driven by allocations out of core fixed income strategies as the expectations for a slowdown in interest rate hikes reversed course this quarter, resulting in higher bond yields. Our Atlas Global Equity Strategy generated positive net organic growth in the quarter, which has almost doubled its AUM since our acquisition of the investment team only two years ago in June of 2021 to $1.6 billion. Turning to investment performance in public markets. In equities, our track record of excellence on a trailing one-year basis continued as 95% of our AUM invested in equity strategies outperformed their benchmark, up from 91% in the previous quarter. Our global equity strategies lagged their benchmark this quarter due to the significant outperformance of mega-cap technology stocks, which were not prominent in either portfolio. Despite this, the Atlas team continues to maintain an odd performance relative to its benchmark year-to-date, and a strong track record of performance over the medium and long term, and has outperformed the MSCI World Index by a notable 7.6% since its inception in 2017. The Keynesian Equity Team's flagship strategy had another strong quarter as being overweight in the index-leading information technology sector, and underweight in the worst-performing materials sector, enabled it to outperform the S&P TSX Composite Index by over 200 basis points. Lastly, the U.S. small-cap and frontier market strategies also outperformed their respective benchmarks in the quarter by a notable 5% and 7%, respectively. with strong security selection being the main drivers of the added value. Fixed income markets generated overall negative results in the second quarter of 2023 as duration and curve effects in a rising interest rate environment resulted in other performance in the active core and strategic core strategies. Despite this, A number of our strategies outperformed their respective benchmarks, including the integrated core strategy with 35 basis points of value added generated from a combination of allocation curve and carry effects in the corporate bond sector. The ERAS foreign fixed income strategies were able to generate positive results in an increasing interest rate environment through efficient sector selection and duration. with the tax-efficient Core Plus strategy outperformance due to the strategy's overweight exposure to longer-maturity municipal bonds. Overall, we continue to be amongst the leaders in the industry in terms of investment performance over the short and long term, with 91% and 94% of our assets under management invested in fixed-income strategies outperforming their benchmarks over one and five years, respectively. Now turning to our private market platform. We continue to grow the private markets platform through positive net organic growth of $300 million in the quarter, with the majority of new mandates allocated to our agriculture, real estate, and private credit strategies for clients in Canada. Negative net contributions in private markets consisted entirely of return of capital to clients, and we continued to exhibit healthy pace of conversion of capital from committed to deployed of $1 billion in the quarter up from $700 million in the first quarter. We also maintained a consistent pipeline with $1.7 billion available for deployment in future opportunities. With respect to investment performance for private markets, in real estate, performance of our Canadian and UK real estate strategies continued to improve as property values experienced a more muted negative impact from cap rate increases with the relative stabilization of central bank rate policy in the first half of 2023, leading valuers to be less aggressive in applying yield increases. Our platform has shown continued resilience despite valuation headwinds due to our portfolio construction weighted towards well-located industrial and residential properties. The Canadian industrial and core funds both continued to generate best-in-class performance despite the challenged environment with an absolute return of 2% respectively in the quarter. In infrastructure, the strategy generated modest negative returns in the second quarter. However, it continued to attract investment through our platform approach with a follow-on investment that closed within an existing platform and the closing of the AMPUS solar energy acquisition in the quarter. Our private credit strategies continue to generate strong returns despite the tough economic backdrop. While certain sectors are nearing a full recovery, other areas including manufacturing, healthcare, and residential construction, are expected to plateau, if not regress. As such, the back half of 2023 will be approached with extreme diligence, and the private credit team will continue to focus on identifying opportunities for investment in floating-rate senior secured term loans to resilient businesses backed by experienced sponsors. The agriculture strategy delivered strong returns in the quarter despite a challenging agricultural season driven by operational performance exceeding targeted production in the southern hemisphere in attractive commodity price environments. And lastly, the private equity fund closed on a new direct equity investment which benefits from downside protection through a stream of contractual and recurring revenue with low customer concentration. Overall, the strategy is well positioned to sustain market softness. We continue to integrate ESG consideration into all investment decisions to support long-term value creation for our investors. Moving on to private wealth. We saw net organic growth in private wealth into private market strategies in the second quarter, driven largely by Canadian clients investing into our real estate and private credit strategies. Commercial performance for private wealth this quarter was impacted by withdrawals from certain fixed income mandates in the U.S., Our offering of institutional grade access to alternative investments in the private wealth space continues to be a revenue growth driver for the business with the assets under management invested in private markets assets from private wealth representing 26% of this business segment and generating an outsized proportion of base management fees at over 52%. Our tactical asset allocation offering is another key differentiator for our private wealth clients, providing agile solutions in a rapidly changing economic environment. This quarter, the strategy detracted value with its maximum underweighted position in equities given its defensive stance through this period of volatility in the markets. However, With the more modest outlook on central bank tightening, the team has since adjusted from a deep recession to stagflation scenario and adopted a moderate underweight position in equities. The team continues to deliver excellent results over the long term against its benchmark, generating more than 2% of alpha on the trailing three-year basis. With that, I will now turn it over to Lucas for a review of our financial performance.